Covington will vote on both a job-incentive agreement and a municipal financing agreement with MarfoFMA, the new airline food producers set to occupy the old White Castle processing facility on Rolling Hills Drive, next week.
Both incentives will appear on the consent agenda for next week’s Board of Commissioners meeting, meaning they will likely pass.
“Oftentimes, we hear about a lot of things happening in the north of the city,” said Covington Mayor Ron Washington, referencing the parts of the city where economic development has tended to concentrate over recent years. “This is the southern part of the city out by I-275. We’re going to have opportunities for people to be making around $33, $35 an hour, which is excellent for our community.”
MarfoFMA is a branch of family-owned company Fleury Michon, which was originally founded in 1905 in France and is a well-known producer throughout Europe. The company bought Quebec-based company FMA in 2006 and Netherlands-based company Marfo in 2019 before merging the two into a single business entity. The old White Castle plant will be the company’s first operation in the United States, and it has already received financial incentive approvals from Kenton County Fiscal Court.
Public records indicate that developers and officials have been coordinating to move the food company into the old distribution center, bringing an expected 98 full-time jobs, 78 of which are slated to be physically located in Covington and Kenton County. The 78 local jobs are expected to pay at least $34.61 per hour in wages, according to state records. The City of Covington puts the average salary of the local jobs at about $56,000 annually.
The jobs incentive agreement will grant the company a 1% payroll tax reimbursement against the local jobs brought to Kentucky over a period of ten years. The city calculates the company will net about $458,000 in reimbursements by the end of that period, so long as it manages to bring the 78 jobs to the city.
Covington’s Business Attraction Manager, Susan Smith, estimated the facility would bring in about “$57 million in new payroll with $1.4 million in new payroll tax” to the city once all of the jobs were filled, or about $945,000 after the incentive reimbursements.
The financing deal consists of at least $37 million in industrial revenue bonds, sufficient to cover the estimated capital investment the company needs to get the project off the ground.
Industrial revenue bonds, or IRBs, are common municipal financing measures to help companies and developers set up shop in a city. When a city, or another taxing entity like a school or a county, agrees to issue an IRB, it serves as a kind of conduit of capital financing for a project.
The business will seek financing from an underwriting institution, such as a bank, as a means of injecting capital into the project. The city then takes an ownership interest in the property, at least on paper, so the business can use the city’s credit score to obtain private investment. In exchange, the city grants the business a tax incentive, the details of which vary depending on the deal. This often takes the form of a PILOT, or payment in lieu of taxes.
PILOTs ensure the city still makes money on the property while reducing the developer’s early investment expenditures. Businesses and cities like IRBs because the developers defray their investment costs, and cities get to make money on a property or lot that might otherwise sit unused, thus generating no tax revenue.
The financing debt itself is held by the developer, meaning the city isn’t on the hook for paying back the debt. Usually, when an IRB period ends, the incentives disappear, and the legal ownership of the property reverts to the business. If a project fails or the business goes under, the property can be sold to settle the debt.
The PILOT agreement on the docket for next week calls for a 50% property tax waiver over a period of ten years. According to city documents, even with the property tax waiver, the city is expected to generate about six times more revenue from the site than it’s generating currently: Rehabbing the building will increase its value, and thus the amount collected from property taxes.
“This is a win for our community,” Washington said.
The Board of Commissioners will cast a final vote on the incentives and financing package at the legislative meeting on Tuesday, March 24.